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Implicit Taxation in Lottery Finance

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  • Charles T. Clotfelter
  • Philip J. Cook

Abstract

State lotteries as they are operated in the United State today involve four distinct aspects: legalization of lottery games, monopolistic provision by the state, marketing of lottery products, and extraction of a portion of the surplus they derive from sales for state revenue. In this paper we use conventional tools of applied public finance to examine the implicit tax levied by lottery agencies through this fourth function . We examine the incidence of the implicit lottery tax, focusing on the dominant lottery games used in the 1980s. We find that the implicit tax is regressive in virtually all cases. We then consider whether the implicit tax rate on lotteries is too high, comparing that rate to excise tax rates on alcohol and tobacco.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2246.

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Date of creation: May 1987
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Publication status: published as "Implicit Taxation in Lottery Finance." From National Tax Journal, Vol. 40 , No. 4, pp. 533-546, December 1987.
Handle: RePEc:nbr:nberwo:2246

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Cited by:
  1. Raj Chetty & Adam Szeidl, 2006. "Consumption Commitments and Risk Preferences," NBER Working Papers 12467, National Bureau of Economic Research, Inc.
  2. Alexander Matros & Wooyoung Lim & Theodore Turocy, 2009. "Raising Revenue With Raffles: Evidence from a Laboratory Experiment," Working Papers 377, University of Pittsburgh, Department of Economics, revised Feb 2009.
  3. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
  4. Horácio Faustino & Maria João Kaiseler & Rafael Marques, 2009. "Why Do People Buy Lottery Products?," Working Papers Department of Economics 2009/01, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  5. Philip J. Cook & Charles T. Clotfelter, 1991. "The Peculiar Scale Economies of Lotto," NBER Working Papers 3766, National Bureau of Economic Research, Inc.
  6. Thomas A. Garrett & Natalia Kolesnikova, 2010. "Local price variation and the tax incidence of state lotteries," Working Papers 2010-035, Federal Reserve Bank of St. Louis.
  7. Thomas A. Garrett, 2011. "A closer look at the tax incidence of instant lottery games: an analysis by price point," Working Papers 2011-010, Federal Reserve Bank of St. Louis.
  8. Kathryn L. Combs & John A. Spry, 2007. "Who Plays the Numbers Games in the Middle of the Day?," Working Papers 200705, Ball State University, Department of Economics, revised Aug 2007.
  9. Humphreys, Brad & Perez, Levi, 2011. "Lottery Participants and Revenues: An International Survey of Economic Research on Lotteries," Working Papers 2011-17, University of Alberta, Department of Economics.
  10. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: A Survey of the Literature," Working Papers 1109, College of the Holy Cross, Department of Economics.
  11. Thomas Garrett, 2001. "An International Comparison and Analysis of Lotteries and the Distribution of Lottery Expenditures," International Review of Applied Economics, Taylor & Francis Journals, vol. 15(2), pages 213-227.
  12. Cletus C. Coughlin & Thomas A. Garrett, 2008. "Income and lottery sales: transfers trump income from work and wealth," Working Papers 2008-004, Federal Reserve Bank of St. Louis.
  13. Raj Chetty, 2004. "Consumption Commitments, Unemployment Durations, and Local Risk Aversion," NBER Working Papers 10211, National Bureau of Economic Research, Inc.

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